He quit as chief executive when taxpayers had to bail out the bank with £20billion.

Unnamed insiders have claimed RBS was brought to its knees by traders who purchased £30billion of bad debts in a spree that was kept from the board.

Fsa chairman Lord Turner confirmed he had a letter from Lord Foulkes and would look into his allegations.

He said: "Whenever there is a failure, we look to see if there have been mismanagements and things outside the rules."

Officials are trying to find a way to force Sir Fred to hand back part of his bumper £16million pension. They would seize on any "smoking gun" email suggesting he knew more on RBS' position than he let on.

A dossier sent to Lord Turner by Lib Dem Treasury spokesman Vince Cable claimed wallpaper costing £1,000 a roll was used to redecorate the lobby outside Sir Fred's office after a small stain was left on one wall.

Carpet at £100-a-square yard was used to re-cover two vast boardrooms twice because he did not like the shade of them and he is accused of blowing £100,000 a month on part-time chauffeurs and flying in fruit from Paris daily.

Mr Cable said: "These revelations show a shocking culture of greed."

City minister Paul Myners, who failed to stop Sir Fred Goodwin pocketing his pension, set up an insurance firm in the tax haven of Bermuda and earned £200,000 in a year, it was revealed yesterday.